In Vietnam, the importance and necessity of an experienced financial advisor in an M&A deal has not yet been appreciated by the business seller.
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In recent years, mergers and acquisitions (M&A) activities in Vietnam have grown strongly in both volume and value of deals. That shows, Vietnam is an attractive investment destination for domestic and foreign investors.
The development of this attractive investment environment is contributed by many factors, including the strong growth rate of GDP, young population structure, highly qualified human resources, increasing disposable income. , leading to rising living standards and increasing urbanization with improved infrastructure contributing to economic activities. With a solid economic outlook and current market situation, M&A activity in Vietnam will continue to grow in the coming years.
With extensive and extensive experience from supporting investors in M&A deals in Vietnam over the past 10 years, I would like to share an analysis of the difficulties and problems that investors have encountered in the past 10 years. M&A deals and strategic investments.
The legal system is still inadequate
Although the Government has given many incentives for investment activities and efforts to reform the legal environment, M&A deals in Vietnam still face certain barriers in terms of laws and management policies. From an investor’s point of view, the inadequacy of the legal system remains a major and paramount obstacle in the development of M&A activities.
In an effort to address impediments and facilitate investment, the Government has implemented a number of important regulatory reforms that are likely to have a major impact on the M&A outlook. Specifically, amendments and supplements to the Law on Investment, the Law on Enterprises, the Law on Securities and other regulations governing investment activities and M&A transactions are being implemented.
Change in foreign ownership ratio
Foreign investors should be aware of the restrictions that apply to the foreign ownership ratio in the target investment company. Under current law, foreign ownership is restricted in some business areas in allowing foreign investors to own only a certain percentage of the target company’s charter capital.
Specifically, 30% is the rate applied to the banking sector; 49% applies to telecommunications services based on existing infrastructure, entertainment business and video games; 51% applies to audiovisual services, road transport services; 65% applies to telecommunications services without infrastructure or up to 100% investment is allowed in unrestricted sectors.
The above limitations will be revised according to the schedule of commitments with the World Trade Organization (WTO), but if the foreign ownership threshold is not specified in an international treaty, it may be stipulated in domestic law. , or it will be at the discretion of the licensing authority on a case-by-case basis.
Foreign ownership in public companies in Vietnam is capped at 49%. A draft new regulation to replace Decision 55/2009 on limiting foreign ownership in public companies has been completed and submitted to the Prime Minister for approval. If this draft is approved, the ceiling is expected to be raised to 60%, subject to shareholder approval. There has been some speculation that the Draft could be approved as early as 2014, but given the magnitude of the matter, it may take some time for the Draft to be fully reviewed and formally approved. .
Find the right target investment company
Finding a worthwhile investment target in Vietnam can be quite challenging, mainly due to the lack of quality deals of the right size (in most industries) and the lack of public companies. and market information. Therefore, many investors rely on their own knowledge and relationships to find the target investment company.
In addition, the process from identifying an attractive target investment company to successfully closing a deal is quite challenging. In which, factors such as executive capacity of the leadership team and M&A synergistic value can play a key role. Investors value and appreciate a competent and reliable leadership team, but this is still a difficult aspect. It should also be noted that unifying the goals and strategies of the investor and the target investment company has never been a simple and easy task.
The lack of attentiveness of the seller
In Vietnam, the importance and necessity of an experienced financial advisor in an M&A deal has not yet been appreciated by the business seller. Some businesses are even unwilling to engage a financial advisor for assistance in coordinating and completing a business sale, thinking they can do better on their own.
However, without an experienced M&A consultant, the seller may have to spend a lot of time and effort to complete the deal and overcome the risks/problems that arise, in addition to having to continue continue to run the business. As a result, there is tension and in many cases this can be the main reason for the failure of the deal.
Another fairly common risk is that the seller of a business often prepares very optimistic business plans, which are not based on credibility and soundness. In addition, they often underestimate the nature and extent of information needed to convince investors that the business plan is credible and viable. A business plan that is not built on a clear/solid basis can affect the investor’s view of the business, complicating the deal making process.
The quality of accounting records is a fairly common risk. Reliable and appropriate audited financial statements, accounting and management reporting systems will help reduce this risk. Good planning and preparation ensures the availability of adequate and appropriate review documentation that will help accelerate investment progress and allow risks and issues to be addressed in advance. by the business seller, discover the possibilities to increase the business value in the transaction and provide maximum support.
The complexity of the corporate structure and the rapid pace of diversification, including issues related to non-core businesses and long-term financial investments, may hinder investors. potential and create difficulties in transaction execution.
Disclosure of information is limited
One of the common difficulties in the review process in Vietnam is the lack of available search engines, as well as the level of reliability and data repositories. Therefore, the review process will be conducted primarily based on the documents provided by the seller regarding the legal, leasing, financial and operational aspects of the target investment company.
The young side of the business seller in M&A deals and unwillingness to share information makes it difficult to carry out the review, as well as prolong the implementation process. In such cases, investors will spend a lot of time explaining to the seller of the business about the categories of information, required documents and the purpose of referencing those documents.
This incident will lead to tension between the two parties, especially when it comes to the stage of negotiation and agreement on the sale and purchase contract (SPA). The seller of the business has not understood the purpose of investors both to request a review and to require terms of commitments and guarantees. Meanwhile, investors require terms of commitment and guarantee to prevent risks in relying on all information when the accuracy has not been compared with many sources in Vietnam.
Transparency and integrity of the leadership team
The business environment in Vietnam is not as transparent as that of developed countries in the world and legal sanctions are not consistent. Therefore, domestic companies often have non-transparent transactions. Companies typically maintain two systems of bookkeeping and this is quite common. The Company often “hides” from potential investors unfavorable business information, such as tax issues, related party transactions, potential debt/liabilities and existing disputes/suits .
Concerns about the competence and integrity of the leadership team should also be addressed. The ability of the leadership team is particularly noted in complex deals, which may also be due to investors’ concerns about the difference in business environment and leadership culture among investors. and executive team. The transparency of business leaders is a significant cause of the failure of deals.
Unreasonable expected price of the business seller
This is a consequence of the lack of a professional management system, in which business decisions and plans are mostly based on “experience” or “feelings” rather than on factual information and data as mentioned above. mentioned above. An overly ambitious business plan will push the seller’s expected price to unrealistic levels.
One of the ways to alleviate this problem is for investors to provide an expected price earlier (after reviewing the key documents of the seller of the business) to identify and find a solution before the difference. price difference between the two parties. Investors should also prepare a reasonable basis for the proposed price, based on the company’s risk and potential assessment, current financial position and competitive position in the industry, among other factors. .
For further information, please contact:
MVA VIETNAM JOINT STOCK COMPANY
Address: LK3 – 04, Loc Ninh urban area, TT. Chuc Son, H. Chuong My, City. Hanoi
Phone: 024.8587.0666 Hotline: 098.135.0666 – 0913.385.099
Mail: dungtq.mva@gmail.com
Website: http://mva.vn
MVA Vietnam – Success Comes From Difference
LK3 – 04, Loc Ninh urban area, TT. Chuc Son, H. Chuong My, City. Hanoi
Email: dungtq.mva@gmail.com
: 024.7109.7766
: 0981.350.666
